Boeing Sale Likely To Spur More Insitu Growth

Company to stay in area

When the news surfaced last week that The Boeing Co. was finalizing a deal to purchase Insitu and make it a wholly-owned subsidiary, many wondered if the Bingen-based unnamed aerial systems manufacturer would be leaving the area.

Company officials, however, offered assurances that they are in the community to stay.

"I have not heard a single executive speak of moving us," said Steven Sliwa, president and CEO of Insitu, in a Friday interview. "If anything, we'll try to avoid doing the opposite, and having too much here."

Sliwa pointed out that Boeing officials value the character of the Bingen/White Salmon community, and they want to maintain the individual, entrepreneurial culture and environment that has worked so well for Insitu.

Founded in 1994, Insitu designs and manufactures high performance unmanned aircraft systems (UAS) for intelligence, surveillance, and reconnaissance uses.

Insitu's "ScanEagle" family of unmanned aerial vehicles (UAVs) has been particularly successful in the ultimate proving grounds -- combat zones in Iraq and Afghanistan.

Sliwa noted that Insitu was attractive to Boeing for many reasons, with its financial success high on the list.

"Insitu has been growing 70 percent a year; Boeing needs more of that," Sliwa said. "And our facility costs are pretty reasonable compared to Chicago and St. Louis. That's valuable to them."

Insitu's revenue is expected to reach $150 million this year.

Boeing and Insitu have been partners since 2002. Working jointly, the two firms developed the ScanEagle UAVs, which is in heavy use with the U.S. Department of Defense and other customers around the globe.

"They are flying in every continent, every day," Sliwa said.

Once the purchase is finalized, Insitu will be attached to Boeing's Integrated Defense Systems' Military Aircraft Division.

Ironically, in an interview with Inc. magazine in September 2006, Sliwa seemed to suggest that a merger of Boeing and Insitu would be a natural fit.

"We are a miniature Boeing, in a sense," read Sliwa's quote in the Inc. interview. "We do the development, production, and services related to robotic aircraft and unmanned aerial vehicles. Our main advantage is that we are long endurance and low cost. Our vehicles are able to stay up for 15 to 20 hours, and only cost $100,000. Other planes that can stay up that long typically cost over $1 million."

Although success with the military applications of its UAVs has been the key to Insitu's stellar performance, Sliwa said the purchase by Boeing was likely to bring somewhat of a shift in focus -- toward further civilian applications.

"There will probably be a bit more emphasis on civilian uses," Sliwa explained. "We are going to find ways to get more civilian applications for our technology. Some thought the transaction would make us more military in focus, but it's just the opposite."

In recent months, Insitu has been working with law enforcement agencies, the National Oceanic & Atmospheric Administration, the U.S. Forest Service, and mineral extracting industries, among others, to create UAVs that can bring innovations in those fields.

Using UAVs to monitor and protect pipelines is another new concept being developed.

Sliwa pointed out that the possibilities for civilian uses were almost endless.

"When I gave a speech to our employees to tell them about the sale to Boeing, a Boeing executive was there and he said it was a really good speech -- except I didn't focus on the civilian applications enough. That's a pressure point for us," Sliwa said. "That's one of the reasons we appeal to Boeing, because they believe we can find more uses for the technologies."

The big advantage of the marriage for Insitu is equally significant.

"When we go for the next big jump, it will require a lot of systems capability we don't have yet. This reduces the risk of getting from here to there, because we'll have a big partner standing beside us," Sliwa said.

Insitu currently employs 360, although about 60 of them do not live in the Gorge. Sliwa expected the deal with Boeing to boost those numbers.

"Overall, we'll have more employees, and my belief is the number of employees we have in the Gorge will grow as well," Sliwa said. "I'm concerned about how big we should get. There are 300 here now, and I think between 400-500 is the right number for an anchor company in the Gorge. We don't want Boeing sending 500 employees here. We'll also have footprints in other places."

According to Sliwa, about 70 percent of Insitu's current work force came from outside the community, with the other 30 percent recruited locally.

"We've worked hard to make sure there's a bonding," Sliwa explained. "We want our employees to like their job and not just for the area, and like the area and not just for their job."

Although Boeing will be the parent company, the Insitu name will remain.

"The Insitu brand name has added value in our market niche," Sliwa explained. "The experts think the name helps."

Discussions about bringing the two companies together have been ongoing for some time, according to Sliwa, who added that the talks went into high gear early in 2008.

"We've always had discussions, since the company was founded," he explained. "In the past, Boeing was nervous that if they acquired us, we would end up losing our spirit of entrepreneurship. But recently, Boeing's attitude was more, `we're not sure we want to let Insitu get away from us.'"

A $400 million sales figure has been mentioned in some published sources, but Sliwa declined to disclose the financial terms of the transaction.

"There are some numbers out there, but I'm not in a position to discuss them," Sliwa said.

With the transaction, the composition of the new board of directors for Insitu -- which currently has seven members -- will also be evolving.

"Three of the Boeing presidents will be on the new board," Sliwa said.

Sliwa's role is also expected to be in transition.

"Initially, I'll still be CEO of Insitu and have wide authority to lead the business," Sliwa said.

Insitu now occupies a dozen buildings in the Bingen/White Salmon community, including two large production facilities at the Port of Klickitat's Bingen Point business park.

"We are still planning for, and expect, more real estate moves," Sliwa said. "We get to the point where we double up our cubicles for awhile, then we expand and get comfortable; then it gets crowded and we have to expand again. It's hard to keep up with the curve."

Occupying so many separate facilities creates some logistical problems, however.

"Our dream is to build a campus, rather than be spread out all over the area," Sliwa said. "If that happens, the buildings we have now would be good buildings for our suppliers."

Sliwa pointed out that Boeing is highly regarded for the work it does to boost the communities where its businesses are located.

"Boeing is one of the nation's leaders in supporting the communities they are in," Sliwa said. "Especially in finding more ways to invest in education. And the community will be able to apply for help with various projects. We are planning to have a long term commitment not just by locating here, but also by being a good corporate citizen. That commitment will be even stronger under the new shareholders."

Insitu employees had a positive reaction to the purchase by Boeing.

"I think it's going to be great. As far as we're all concerned, it's good news," said Tabitha Orlando, Insitu's director of marketing and communications.

Klickitat County Commissioner Rex Johnston said he believed the move would strengthen Insitu.

"This will position them to actually do better than they were before," Johnston said. "To the best of my knowledge, it won't change anything here, except give them more resources to fall back on. When there is a downturn in the economy, it helps to have the backing of one of the largest corporations in the world. This will hopefully strengthen Insitu and make it a more viable business. They're all set up here, and hopefully they won't move."

Marc Thornsbury, executive director of the Port of Klickitat, said he was optimistic that the transaction would bring further economic growth to the area. However, he acknowledged the sale brings some uncertainty.

"When you're talking about a company as big as Boeing, nothing is out of the question. But no one has said that it will be anything other than business as usual," Thornsbury said.

Insitu currently occupies two buildings on the Port of Klickitat's Bingen Point property -- one building provides Insitu with approximately 25,000 square feet of production space; the other about 14,000 square feet.

Bingen Mayor Brian Prigel said he had two concerns about the potential impact of Boeing's purchase of Insitu.

"One is that they will eventually run out of space and move, out of necessity, out of the Gorge," said Prigel, who owns Prigel Machine & Supply. Prigel's company is among many in the mid-Columbia Gorge region that does business with Insitu.

Prigel said about 35 percent of his company's sales are direct to Insitu, with another 30 percent of his sales tied to Insitu vendors. Given those numbers, Prigel is keenly aware that Insitu's presence in the Gorge is critical to his business, as well as to many other companies in the region.

"That's the only other thing that makes me nervous," Prigel said. "I hope they do find a place to build a central facility. Even if it's Dallesport; as long as it's in the Gorge."

Thornsbury said the purchase by Boeing is a huge tribute to Insitu's technical expertise and business savvy.

"Companies like Boeing don't buy just anybody, they buy key players," Thornsbury explained. "That's a real feather in Insitu's cap, and a real positive for them."

Boeing's purchase of Insitu is expected to close in September, provided there are no snags in gaining regulatory approval.

Editor's note: The Enterprise goes to press on Tuesday, and our newspaper was virtually completed by the time news of Insitu's purchase by Boeing reached us. As a result, we were unable to cover this important story for last week's issue.